Avoid these 7 mistakes when entering the Hungarian market: Expert insights for foreign investors

Entering the Hungarian market is an attractive venture for foreign investors thanks to its rare combination of benefits, such as a low corporate tax rate (9%), EU membership and a central European location. However, despite these advantages, the process of market entry is often more challenging than it appears at first glance. In 2025, the country’s emphasis is increasingly on long-term competitiveness. Hungary stands out for its dual identity: it offers EU-level legal and financial frameworks, but with operating costs and tax burdens that are closer to those of emerging markets.

This makes it especially attractive for:

The country also has a strong track record in automotive and electronics and is now positioning itself as a regional hub for battery production and green technologies.

Hungary offers several tax incentives, such as:

The most common mistakes investors make when entering the Hungarian market

Even with good plans and strong intentions, foreign investors often come across difficulties because they do not know the local obligations well. From our real experience, here are the main mistakes companies make when entering the Hungarian market – and how you can avoid them right from the beginning.

Mistake #1: Company formation

During the company formation process in Hungary, we often see investors make several avoidable mistakes. While nearly the entire procedure can be managed remotely, it is crucial to remember that opening a Hungarian bank account is mandatory and this step requires physical presence. Banks may also sometimes refuse to open an account, so reaching out to them in advance should be the first move to understand the available options.

Another frequent oversight is not carefully selecting the appropriate company format that aligns with the desired level of responsibility for each member. Additionally, the tax and social security status of the managing director (MD) must be considered beforehand and the legal relationship between the MD and the company must be clarified (whether it is based on employment or an agency contract).

Finally, companies need to think through all tax-related declarations at the time of incorporation. Several options can be selected initially, but changes may only be possible within a certain statutory period. If businesses entering the Hungarian market do not plan these declarations carefully from the start, they risk being locked into decisions that may not serve their best interests in the long term.

Mistake #2: Tax registration and planning

During the company incorporation process, tax registration is done simultaneously through a one-stop-shop system. It is essential to make precise declarations and important tax decisions at this stage, which should be discussed with an experienced advisor to avoid potential disadvantages.

One common oversight is not thoroughly considering which available tax scheme best fits the company’s needs. Additionally, VAT declarations become mandatory from the day of registration, even if there is no activity to report. Failing to submit these VAT returns during the interim periods (before operations officially begin or before selecting an accountant) can result in penalties.

Mistake #3: Payroll setup

When setting up payroll in a new country, one of the most common pitfalls is failing to select a qualified payroll provider. Without expert assistance, it becomes difficult to keep up with local regulations and meet all return deadlines, increasing the risk of non-compliance.

For businesses operating through a Hungarian entity, separate payroll registration is not required. However, foreign employers who hire Hungarian employees under the local social security system must complete a specific registration process – a step that is frequently overlooked. Missing this requirement can result in compliance problems down the line.

Another common error involves not registering employees correctly or making mistakes in payroll calculations. Such mistakes can lead to severe tax penalties, putting the company’s finances and reputation at risk. Additionally, mishandling payroll for expatriates, especially regarding personal income tax and social contributions, can create further complications.

Mistake #4: Labour law compliance

Foreign employers often make the mistake of using unclear employment contracts, which can lead to misunderstandings about the terms and conditions of employment. Mistakes with probation periods, such as setting them incorrectly or failing to specify their duration, are also common. Wrongful terminations due to a lack of understanding of local regulations also bring significant risks, just like the insufficient knowledge of employee rights established by the Hungarian labour law.

Another frequent mistake is neglecting to provide the mandatory information sheet that must accompany an employment contract. Properly handling remote work arrangements can also be problematic; many employers make errors when structuring remote working setups from a legal perspective, potentially failing to comply with the Hungarian legislation.

Scheduling work hours is another grey area, especially when employers do not consider essential legal criteria such as required rest periods and other statutory obligations. Errors in overtime compensation, such as not providing compliant payment for additional hours worked, can lead to further legal complications. Additionally, failing to grant the paid time off required by law or incorrectly recording employees’ working hours are common mistakes that not only result in financial penalties but can also damage a company’s reputation and employee relations.

Mistake #5: Accounting and financial reporting

Beyond the initial excitement of launching a business, many new companies quickly find themselves lost in accounting and financial reporting challenges. Issues such as failing to maintain complete records, submitting information in incorrect formats and missing critical deadlines are surprisingly common. The lack of a local accountant can make compliance even more elusive, leaving businesses vulnerable to regulatory missteps.

Moreover, neglecting transfer pricing obligations often results in additional complications and penalties. As Hungary is tightening its transfer pricing audit requirements in 2025, companies entering the Hungarian market should watch out for potential non-compliance and get expert guidance on how to handle the documentation, reporting and ongoing monitoring of applied transfer prices throughout the year.

Mistake #6: Banking, transactions and shareholder structure

Several practical and legal issues can delay the financial setup or slow down the initial operations of a business. What we see most often is related to opening a corporate bank account. While it is often covered during the incorporation process, the shareholder structure of the company may present challenges. In some cases, the involvement of foreign shareholders or complex ownership arrangements may require additional documentation or verification steps, potentially extending the timeline for account approval. From an immigration perspective, certain shareholder configurations may also necessitate extra procedures or compliance measures, further delaying the financial launch of the business. Addressing these challenges early and seeking professional guidance can help ensure a smoother and quicker setup.

Mistake #7: Lack of local support or advisors

When companies attempt to handle all aspects of their operations remotely or without local support, they often end up relying solely on online research. This approach can lead to overlooking important obligations, experiencing delayed responses and making costly mistakes. Decisions based on unreliable online articles may have serious consequences, including significant tax penalties, labour law violations, litigation expenses and, in some cases, even the termination of a company’s tax identification number. Addressing these risks by seeking knowledgeable local advisors is crucial to ensure compliance and avoid preventable setbacks.

Ready for entering the Hungarian market? Let us guide you

Starting a business on the Hungarian market does not need to be difficult. With our company incorporation services in Hungary, we can help you pick the right legal form, prepare all the documents and make sure everything is set up correctly from the very beginning.

If you are still considering your choices or do not know where to start, you can book a free market entry consultation with our local experts. We will explain the main steps and help you avoid the common mistakes that new businesses often make when entering the Hungarian market.